My previous article covered Sacramento's new wildfire claim legislation, and one provision worth examining closely is the limit on private equity investors. Lawmakers worked for months to assemble new proposed legislation for wildfire cases. What emerged was SB 492, a scaled-back wildfire liability bill that stripped out some of the most controversial terms. The bill failed to get a vote and expired at the end of the last legislative session. Even though the bill did not advance, it is useful to examine what was included in the final language. Subrogation and limits on non-economic damages did not make it to the final text, but language limiting whether private equity investors can buy an interest in wildfire did make it to the final proposal.
Private equity buying into wildfire claims concerns me
As an advocate for those impacted by wildfires, I am opposed to any proposal that would make it harder for survivors to receive fair compensation. The safest approach is to keep private equity money out of the process. The next best approach is strict limits on what private-equity firms can do when they speculate on those claims. We need to recognize that a family's right to recover damages is different from an investor's right to profit from the payout.
When I take on a wildfire case, I want to understand the entirety of my client's case. This means understanding the facts of what happened as well as their goals for the future. Are they trying to rebuild? Get back to work? Move to a new area? All of this information helps me to ensure that my advice provides the best resolution to a traumatic experience. Introducing a third party investor into that decision making process obviously adds complexity.
Money offered now for a share of a future potential payout may help someone who is struggling to pay bills. I would want any of my clients considering this kind of arrangement to fully understand what an offer would cost them. Reviewing the terms of the deal includes evaluating how much of the monetary value is being traded for funds sooner, and how much say the investor has on how the claim is handled.
What was proposed, and what it meant
SB 492 would have barred private-equity groups from acquiring certain wildfire claims or recovery rights, except under specified circumstances. It also would have prohibited them from paying certain wildfire litigation costs. As written, the language in the bill would have barred transfers of interests in contingency fees, prevented borrowers from pledging those fees as loan collateral, and would have restricted assignments of subrogation rights. Although the legislation expired without passing, it will be important to review any future proposal across two dimensions: first, how it affects survivors' ability to obtain representation, and second, which interests it removes from their cases.
Restrictions like these can affect what survivors are able to choose. The proposed bill explicitly prohibited certain transactions involving their claims. Protecting the client relationship may justify limits on these arrangements, but those limits must be drafted carefully so survivors can still find counsel. That is the organizing question.
The standard I would apply starts here.
Good policy should protect independent legal advice while making sure people understand the financial terms before they agree. Someone preparing a serious case must still be able to afford it. Investor concerns should not reduce the amount an injured person can recover from the responsible party. Any proposal that prevents people from making a claim while framing that restriction as protection for survivors, seems like a poor outcome.
I support keeping speculative financial interests from taking over a wildfire claim. Any offer I consider or recommendation I make should be measured against the client's losses and the evidence, with the available choices in view. That is the discussion that matters.
Before you sign anything related to your wildfire claim, ask your lawyer two questions: what rights or claims am I giving up, and does this amount actually cover my losses, not just the investor's cut?. Sign only when you understand those terms.
The legislation did not pass, but the fact that private equity restrictions advanced as far as they did signals that this fight is not over. I will continue to follow this and other developments that impact wildfire survivors' and will report back with updates.
This article offers general information and commentary on policy, not legal advice. Reading it does not establish an attorney-client relationship. Cases vary, and no particular outcome is guaranteed.